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Regions Financial Joins Smaller Banks' Push Into Credit Cards

By Andrew R. Johnson Regions Financial Corp. (RF) is rolling out a new line of credit cards this week, becoming the latest regional lender aiming to grow its card products and take on big players like Discover Financial Services (DFS) and J.P. Morgan Chase & Co. (JPM). The push comes as new restrictions on other products and increased competition for customers put a crimp on revenue growth for most lenders. By offering or expanding credit-card offerings, Regions and other banks potentially could generate new revenue sources; however, the move also comes with the risk of higher credit losses. "Our approach to entering the credit card business was to meet a specific need for customers and to diversify our revenue streams," said Tom Brooks, head of cards and payments for Regions, a Birmingham, Ala.-based lender with customers in 16 states. On Wednesday, Regions will announce a new suite of four consumer credit cards and two business cards. Previously, Regions didn't issue its own credit cards; rather, it outsourced that function to a division of Bank of America Corp. (BAC) that manages card programs for smaller banks. Regions Financial's name was on the cards, but the bank didn't service the loans or have direct interaction with credit-card customers. Regions also didn't carry the loans on its books, so the bank didn't earn revenue from interest and other fees charged to customers. Regions purchased that portfolio of about 500,000 customer accounts--which included about $1 billion in credit-card loans--from Bank of America in June 2011. Other regional players also have beefed up their card products in recent months. U.S. Bancorp (USB) has enhanced its rewards credit-card offerings, recently rolling out a card that lets customers receive up to 5% cash back on certain purchases. Sovereign Bank, a unit of Spanish bank Banco Santander SA (SAN.MC, SAN), debuted a new credit card earlier this year after buying its $200 million portfolio from Bank of America. Huntington Bancshares Inc. (HBAN), of Columbus, Ohio, currently doesn't offer credit cards but is developing a new suite of products. The credit-card industry is dominated by six lenders--Discover, Chase, Bank of America, American Express Co. (AXP), Capital One Financial Corp. (COF) and Citigroup Inc. (C)--that account for the majority of loan balances. Competition among those players has been fierce in the last year as they each try to win new customers and get their cards to be "top of wallet," or the first one consumers pull out when making a purchase. "Everybody is fighting for the same slow-growing pool of receivables," said Don Fandetti, an analyst who follows credit-card lenders for Citi. For that reason, regional banks are likely to have a difficult time achieving significant growth rates in credit cards. However, their focus on the business could further pressure the larger players. "That's a fear of a lot of investors," Mr. Fandetti said. A weakening economy also could make growth difficult. Recent surveys show consumer confidence has declined, and weak employment figures may present a challenge for lenders in the future if borrowers have trouble paying their bills. Mr. Brooks, of Regions, said recent data haven't caused him to be overly concerned about the bank's push into card lending, noting Regions intends to focus on prime borrowers, or those with good credit. For example, Regions will offer a high-end consumer card that carries a $125 annual fee. Regions hasn't provided specific growth targets for the cards. About 11% of Regions's checking-account customers and 13% of its mortgage customers have a Regions credit card, the company said last month. Regions isn't likely to rank among the largest credit-card issuers anytime soon. Its $1 billion portfolio compares with Chase's $130 billion and Bank of America's $112 billion in outstanding U.S. card loans last year, according to the Nilson Report, a payments-industry newsletter. Nonetheless, pushing credit cards could help regional banks recoup lost fee income, which has been hit by new rules that limit the fees merchants pay banks to accept debit cards and that require banks to obtain customers' consent before enrolling them in debit-card overdraft programs. While new limits on certain credit-card practices took effect in 2010, credit cards aren't subject to merchant-fee or overdraft rules. "It clearly helps fill a revenue gap that was created," Mr. Brooks said. Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com